Why is the bill needed?

A financially healthy pension system with the ability to provide modest and sustainable inflation protection for retirees and/or a reduction in service requirements for active teachers, is a benefit for all of Ohio. It can even help attract and retain teachers for our public schools.

Ohio’s employer contribution rate is the second lowest among states where teachers are not covered by Social Security (median of 19.6%). The current rate of 14% of payroll is the maximum allowed under the statute and has remained unchanged since 1984.

The State Teachers Retirement Board does not currently have the authority to increase the employer contribution rate. An act of the legislature is needed to increase the rate. The phased-in increase proposed in this legislation would allow the State Teachers Retirement Board to responsibly consider benefit changes sooner than would otherwise be possible.

Of note, Ohio’s employer contribution rate is fixed, making it difficult to increase contributions in response to market downturns, exacerbating the impact of market volatility. Early funding reduces the need for catch-up contributions later. Adequate funding reduces the risk of future contribution spikes or unexpected financial strain and improves the pension plan’s ability to weather economic downturns.

A decade of sub-par equity market returns in the early 2000s, combined with demographic changes, put STRS Ohio on a path where the system would have been unable to pay benefits by 2040. Pension reforms passed by the Ohio legislature in 2012 have gradually helped improve the system’s financial condition but have negatively impacted our members and retirees. These reforms included decreases to COLA for STRS Ohio retirees, teachers having to work longer in order to retire and a 40% increase to the member contribution rate. In working with the legislature and its stakeholder groups, STRS Ohio took the very difficult step of making benefit changes to keep the system from deteriorating further. The changes worked, and the system has recovered significantly, though not yet to the point where meaningful inflation protection or reduction of retirement eligibility requirements is possible.

Increasing Ohio’s employer contribution rate will put benefit changes that can be sustained over the long-term back on the table for Ohio teachers.